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BEPS Action 8 on intangibles

Customs valuation & Action 8

Now we know what it is Action 8 about , we are going to analyze the impact of action 8 on Customs Valuation. First at all the potential impact of the Section A of the Action Plan currently analyzed. Section “A” try to identify what it should be understood as intangible.

The Customs Valuation is based on the price paid or payable for the goods where the value of the intangible is in most of the cases deemed as dutiable assist.

There are value drivers that are typically considered dutiable for Customs Valuation purposes e.g. manufacturing know-how, designs (except preliminary design sketches), models, patents, developments, copyrights or trade marks.

There other value drivers that are not typically dutiable assist as research fees, marketing fees or rights for resell or distribution.

What it is considered intangible and the way in which intangibles are determined can have a direct impact on Customs Valuation. Why? Because the Customs Code Committee refers to the OECD definition of royalties and licenses fees.

However not every royalty fee under transfer pricing perspective is dutiable from a customs valuation point of view. Royalties must fulfill certain requirements from a Customs Valuation perspective in order to become a dutiable assist. This is a vast topic.

It is crucial as well to clearly define in the License Agreements the services that the royalty payment is covering, not only for determining its dutiability from a Customs Valuation point of view but also because happens more than expected that something is named royalty without being a royalty.

The Action 8 clarifies the definition of intangibles . New definitions directly impacts what it should be deemed as intangible from a customs perspective. The Action 8 gives the following definitions regarding intangibles:


2.Know-how and trade secrets

3.Trademarks, trade names and brands, including marketing intangible

4.Rights under contracts and government licenses

5. Licenses and similar limited rights in intangibles and 6.Goodwill and ongoing concern value.

The IP allocation, based on the previous definitions should be reviewed taking into account functions and risks undertaken by the different related parties involved:

"(…) the determination of the entity or entities within an MNE group which are ultimately entitled to share in the returns derived by the group from exploiting intangibles is crucial. A related issue is which entity or entities within the group should ultimately bear the costs, investments and other burdens associated with the development, enhancement, maintenance, protection and exploitation of intangibles. (…) Members of the MNE group performing such functions, using such assets, and assuming such risks must be compensated for their contributions under the arm’s length principle".

OECD Guidelines.

Royalties and Licenses fees under the Community Customs Code are deemed in principle as dutiable assists and therefore upward adjustments are required if these fees are not part of the price, provided of course that the fees fulfilled certain requirements. But if the royalty or license fee is part of the price a downward adjustment could be complicated. This is a complex topic I am not going to analyze here.

From a customs perspective in principle the residence of the IP holder or where the IP was developed do not determine in general terms the dutiability of the royalty provided of course that the IP is not allocated to the importer or to a different related party under certain circumstances in a different stage of the supply chain.


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